Australia’s record construction boom means Defence procurers will need to fight harder and smarter than ever to attract a competitive pool of bidders for future infrastructure projects.
“This is an intense period of acceleration, most notably in the Defence, Transport and Energy sectors”, says Brendan Lyon of KPMG ahead of the ADM Defence Estate & Base Services Summit.
“Order books are already full and there are an unprecedented number of construction projects in the national pipeline over the next 48 months. With the market as stretched as it is, contractors now have the luxury of choice about which projects they take on”.
Further complicating matters is the limited supply of tier 1 contractors who are willing or able to participate in the top end of the market. “Only a few contractors have the available balance sheets to cover larger infrastructure projects”, says Brendan. “The ‘hot’ construction market and limited pool of major contractors means that agencies need to engage regularly, openly and deeply to win attention for their projects”.
Brendan adds that without careful management, the knock-on effects from a stretched construction market could impact pricing, risk management and project outcomes.
“Procurers will need to be clever in terms of how they structure deals going forward, if they are to attract a wide range of interest”, he adds.
Within Defence, the issue of supply and demand imbalance is of growing concern. The Australian government is investing $200 billion into Defence capability over the coming decade – a move which will involve the significant expansion of its workforce and infrastructure.
So how does Defence fare in terms of ‘attractiveness’ against rival sectors such as Transport and Energy?
“Defence measures up well against other infrastructure procurers and has a long history working with contractors of all sizes”, says Brendan.
“Defence has also developed a good tool kit of procurement models, which are well understood within Defence and by the construction market and have seen good outcomes for Defence and the taxpayer”.
“Major construction companies know the Defence industry well and have worked with the Department for a long time”.
“But Defence infrastructure is ramping up alongside an unprecedented transport programme in the major states, which is overlaid by an unusually large number of major Commonwealth infrastructure projects like Inland Rail, NBN, Western Sydney Airport and Snowy 2.0.”
“Read together, this sees Defence projects in daily combat with state transport agencies and the wider Federal Government, to win the investment and skill Defence needs to get the job done well”.
“Defence has a good history and solid reputation, but like all procurers, Defence will need to think carefully about its commercial and contracting strategies for each project”, he adds.
“Procurers need to be asking themselves, how can we contract projects in a way in which we will attract a competitive field of bidders; how can be constrain costs; and how can we drive value for money in a market in which there is a supply and demand imbalance?”
“Australia is at the start of a huge wave of construction activity and that means that the way we did projects last month, last year and last decade will be different to how we approach them next month, next year and over the decade ahead”.
Brendan Lyon will continue this conversation at the ADM Defence Estate & Base Services Summit – taking place 19 September 2018 in Canberra.